One of the most contentious environmental debates between George W. Bush and Al Gore this election season concerns what to do with Alaska's Arctic National Wildlife Refuge (ANWR). Bush, like most Republicans, thinks it should be opened up to the oil industry. Gore, like most Democrats, thinks it should be walled off from commercial exploitation. Neither has a very strong case.
If there's one thing we should have learned from the economic history of the past century, it's that governmental agents are incapable of ascertaining how resources can best be used. If politicians were better able to allocate resources than market actors, then West Germany, not East Germany, would have collapsed, and the Soviet block, not the Western block, would have won the Cold War.
The dispute over what to do with ANWR occurs in a vacuum because we lack price signals to guide our deliberations. Bush implicitly suggests that the oil beneath ANWR is more valuable than the wildlife above it. Gore, of course, asserts the opposite.
But how do they know? The only real way to discover the value of a resource is to check its price. But since ANWR's resources are not in the marketplace, there are no prices and no way empirically to judge the matter.
The only way to discover the value of ANWR's resources is to put those resources into the marketplace. If we want to maximize the benefits that ANWR can provide to the American people, we should privatize it and let market agents, not politicians, decide whether to drill or not to drill.
How we divest ANWR, however, will affect the distribution of benefits from privatization. Assume, for instance, that we simply auctioned ANWR off, allowing conservationists to bid against oil companies for the land. It's not hard to imagine that the oil industry would outbid the conservationists for the most economically promising real estate. But if we gave ANWR to the conservationists (say, the Nature Conservancy) and allowed them to do with it what they will, would the same amount of economically promising land end up in the oil industry's hands sometime down the road? Maybe yes, maybe no.
In the first scenario, the oil industry captures the wealth. In the second, the conservationists capture the wealth. While each party would jockey to ensure that the scenario favoring their interests governed the privatization of ANWR, there's no objective reason for government to chose one divestiture approach over the other. Either scenario will maximize social utility, which is economic jargon for "the greatest good for the greatest number."
Political realty, however, dictates a solution. While there's probably little support for selling ANWR to the highest bidder, there's potentially a lot of support for turning it over fee simple to the conservationists. Since the transaction costs of the latter are probably lower than those for the former, we can find a good economic rationale for such a move. Moreover, you could argue that environmentalists have a sort of "squatter's right" to ANWR already and that divestiture should therefore grant wealth gains to them and not their opponents.
Would giving ANWR to the conservationists lock the oil industry out? Not necessarily. The oil industry claims that it only needs access to a tiny part of ANWR, an area about the size of Dulles National Airport. There's good reason why conservationist owners of the reserve might take, say, $10 billion for that access. They could use that money to buy more land elsewhere and insist upon environmentally sensitive drilling and transportation practices. After all, when environmentalist organizations manage their own lands, they often allow industry access under the right terms and conditions. In fact, turning ANWR over to the conservationists might be the only way that the oil industry will ever have a shot at exploiting those potentially rich fields.
Whenever economic efficiency and environmental protection can be served by the same policy, we should embrace it. Deeding ANWR lock, stock and barrel to the conservationists would end the ongoing dispute and without question serve the economy's best interests.
Unfortunately, Bush has missed a tremendous opportunity to win favor with environmentalists while advancing the economic interests of the country.
Taylor is director of natural resource studies at the Cato Institute, a nonpartisan public policy research organization in Washington.
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